stakeholders connecting with our

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2 connecting with our stakeholders Every business requires ethical and transparent approach in executing responsibilities to stakeholders If we understand and remember our responsibilities to our stakeholders, we will enjoy continuous trust and support as managers of their interests.

3 Board of Directors Tan Sri Dato Sri Dr. Teh Hong Piow NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN 38 ANNUAL REPORT 2015

4 Board of Directors Mr. Tee Choon Yeow INDEPENDENT NON-EXECUTIVE CO-CHAIRMAN 2. Mr. Tan Kok Guan CHIEF EXECUTIVE OFFICER/ EXECUTIVE DIRECTOR 3. Dato Haji Abdul Aziz bin Dato Dr. Omar INDEPENDENT NON-EXECUTIVE DIRECTOR (Retired on 28 January 2016) 5. Ms. Chan Kwai Hoe INDEPENDENT NON-EXECUTIVE DIRECTOR 6. Mr. Lee Chin Guan INDEPENDENT NON-EXECUTIVE DIRECTOR 7. Ms. Kong Thian Mee COMPANY SECRETARY 4. Mr. Quah Poh Keat INDEPENDENT NON-EXECUTIVE DIRECTOR CONNECTING IDEAS 39

5 Board of Directors Profile Tan Sri Dato Sri Dr. Teh Hong Piow NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN 40 ANNUAL REPORT 2015

6 Tan Sri Dato Sri Dr. Teh Hong Piow, aged 85, was appointed to the Board of the Company on 27 September 1971 and has served as Chairman of the Company since then. He is also a Non-Independent Non-Executive Director and Chairman of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Tan Sri Dato Sri Dr. Teh serves as Chairman of the Investment Committee of the Company. Tan Sri Dato Sri Dr. Teh is a banker by profession. He began his banking career in 1950 and has 66 years experience in the banking and finance industry. He founded Public Bank Bhd in 1965 at the age of 35. Tan Sri Dato Sri Dr. Teh had won both domestic and international acclaim for his outstanding achievements as a banker and the Chief Executive Officer of a leading financial services group. Awards and accolades that he had received include : Malaysia Financial Services in Asia 2006 Dedication and Industry 2006 Malaysia the Year Award Malaysia 2011 Malaysia Malaysia Malaysia 2015 Service Industry Award 2015 Malaysia Tan Sri Dato Sri Dr. Teh was awarded the Medal For the Course of Vietnamese Banking by the State Bank of Vietnam in 2002 for his contributions to the Vietnamese banking industry over the past years. Tan Sri Dato Sri Dr. Teh was conferred the Recognition Award 2007 by the National Bank of Cambodia in appreciation of his excellent achievement and significant contribution to the banking industry in Cambodia. In recognition of his contributions to society and the economy, he was conferred the Doctor of Laws (Honorary) from University of Malaya in Tan Sri Dato Sri Dr. Teh had served in various capacities in public service bodies in Malaysia; he was a member of the Malaysian Business Council from 1991 to 1993; a member of the National Trust Fund from 1988 to 2001; a founder member of the Advisory Business Council since 2003; and a member of the IPRM Accreditation Privy Council. He is an Emeritus Fellow of the Malaysian Institute of Management and is a Fellow of the Asian Institute of Chartered Bankers; the Chartered Institute of Bankers, United Kingdom; the Institute of Administrative Management, United Kingdom; and the Governance Institute of Australia. He is the Chairman of Public Bank Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. His directorships in other companies are as Chairman of Public Investment Bank Bhd, Public Mutual Bhd, Public Islamic Bank Bhd, Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd and Cambodian Public Bank Plc, and several other subsidiaries of Public Bank Bhd. Tan Sri Dato Sri Dr. Teh attended all the 13 Board Meetings which were held during the financial year ended 31 December CONNECTING IDEAS 41

7 Board of Directors Profile Mr. Tee Choon Yeow INDEPENDENT NON-EXECUTIVE CO-CHAIRMAN Mr. Tee Choon Yeow, aged 63, was appointed to the Board of the Company on 29 October He was the Chief Executive Officer of the Company until he retired in 2013 and thereafter served as a Non-Independent Non- Executive Director (NINED) of the Company. Mr. Tee was re-designated as Independent Non-Executive Director with effect from 1 March 2015 and appointed as Co-Chairman of the Company on 8 July He is also a NINED of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Mr. Tee serves as Chairman of the Audit, Nominating, Remuneration and Risk Management & Compliance Committees of the Company. Mr. Tee holds a Bachelor s Degree in Commerce from the University of Canterbury, New Zealand. He joined the Company as an Accountant in He is a Chartered Accountant of the Institute of Chartered Accountants, New Zealand and the Malaysian Institute of Accountants and a Fellow of the CPA Australia. His directorship in other company is as Director of Matang Berhad. Mr. Tee attended all the 13 Board Meetings which were held during the financial year ended 31 December ANNUAL REPORT 2015

8 Board of Directors Profile Mr. Tan Kok Guan CHIEF EXECUTIVE OFFICER/ EXECUTIVE DIRECTOR Mr. Tan Kok Guan, aged 59, was appointed to the Board of the Company on 29 October He was an executive director of the Company from October 1996 to May 1999 and thereafter served as a Non-Independent Non-Executive Director to July He was appointed as Chief Executive Officer of the Company with effect from 8 July 2013 and held the position of Executive Director of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Mr. Tan serves as a member of the Investment Committee of the Company. Mr. Tan holds a Bachelor s Degree with Honours in Science from the University of London, United Kingdom and a Master s Degree in Business Administration from the University of Hawaii. He is also a Chartered Insurer of the Chartered Insurance Institute in London and an Associate of the Malaysian Insurance Institute in Kuala Lumpur. Mr. Tan attended all the 13 Board Meetings which were held during the financial year ended 31 December Dato Haji Abdul Aziz Bin Dato Dr. Omar INDEPENDENT NON-EXECUTIVE DIRECTOR (Retired on 28 January 2016) Dato Haji Abdul Aziz bin Dato Dr. Omar, aged 68, was appointed to the Board of the Company on 9 October He is also an Independent Non-Executive Director of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd (Lonpac), a public company and appointed as Co-Chairman of Lonpac on 8 July Presently, Dato Haji Abdul Aziz serves as Co-Chairman of the Audit Committee and member of the Nominating, Remuneration and Risk Management & Compliance Committees of the Company. Dato Haji Abdul Aziz qualified as a Chartered Accountant from the Institute of Chartered Accountants in England & Wales, and is also a Chartered Accountant of the Malaysian Institute of Accountants. During his previous banking experiences, he became a Fellow of the Institute of Bankers Malaysia. He was the President and Chief Executive Officer of a Malaysian bank from 1986 to His 47-year experience also includes the areas of audit and accounting, taxation, property, plantation, hotelling, trading and manufacturing, both locally and abroad. His directorships in other companies are as Director of Public Mutual Bhd, PB Trustee Services Bhd and AIA PUBLIC Takaful Bhd. Dato Haji Abdul Aziz attended all the 13 Board Meetings which were held during the financial year ended 31 December CONNECTING IDEAS 43

9 Board of Directors Profile Mr. Quah Poh Keat INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Quah Poh Keat, aged 63, was appointed to the Board of the Company on 2 January He is also a Non-Independent Non-Executive Director of the Company s whollyowned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Mr. Quah serves as a member of the Audit, Nominating, Remuneration and Risk Management & Compliance Committees of the Company. He is a Fellow of the Malaysian Institute of Taxation and the Association of Chartered Certified Accountants; and a Member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants and the Chartered Institute of Management Accountants. Mr. Quah was a partner of KPMG since October 1982 and was appointed Senior Partner (also known as Managing Partner in other practices) in October 2000 until 30 September He retired from the firm on 31 December Mr. Quah is experienced in auditing, tax and insolvency practices and has worked in Malaysia and the United Kingdom; his field of expertise includes restructuring, demergers and privatisation. His directorships in other companies are as Director of Public Mutual Bhd, Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd, Cambodian Public Bank Plc, Campu Lonpac Insurance Plc and Campu Securities Plc, and other subsidiaries of Public Bank Bhd. Mr. Quah attended all the 13 Board Meetings which were held during the financial year ended 31 December Ms. Chan Kwai Hoe INDEPENDENT NON-EXECUTIVE DIRECTOR Ms. Chan Kwai Hoe, aged 59, was appointed to the Board of the Company on 1 July She is also an Independent Non-Executive Director of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Ms. Chan serves as a member of the Audit, Nominating and Risk Management & Compliance Committees of the Company. Ms. Chan holds a Bachelors Degree in Analytical Economics, University of Malaya (Honours). Ms. Chan has gained extensive experience during her tenure with Bank Negara Malaysia (BNM). She has been involved in operations and policy formulation relating to the insurance industry, having overseen the financial health and proper market conduct of a select group of insurers, brokers and adjusters. She also supervised the Learning, Knowledge and Customer Relationship Management of 13 departments of BNM, and managed a project to put in place the Financial Services Act 2013 and Islamic Financial Services Act She retired from BNM in May 2012 and acted as Advisor to the Chief Executive Officer of Perbadanan Insurans Deposit Malaysia, mainly on issues relating to FIDE (Financial Institutions Directors Education Programme) Forum until March Ms. Chan attended 6 Board Meetings held from July 2015 to December 2015 following her appointment as a Director on 1 July ANNUAL REPORT 2015

10 Board of Directors Profile Mr. Lee Chin Guan INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Lee Chin Guan, aged 57, was appointed to the Board of the Company on 8 October He is also an Independent Non-Executive Director of the Company s wholly-owned subsidiary, Lonpac Insurance Bhd, a public company. Presently, Mr. Lee serves as a member of Audit and Risk Management & Compliance Committees of the Company. Mr. Lee qualified as a Barrister-at-Law from the Middle Temple, United Kingdom in He also holds a Bachelor s Degree in Science (Hons.) from the University of Manchester Institute of Science & Technology, England and Degrees in Law from Cambridge University, Oxford University and Chicago-Kent College of Law. His directorships in other companies are as Director of Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd and Public Finance Ltd. Mr. Lee attended 2 Board Meetings held from October 2015 to December 2015 following his appointment as a Director on 8 October Ms. Kong Thian Mee COMPANY SECRETARY Ms. Kong Thian Mee was appointed as Company Secretary of LPI Group on 1 August 2000 and heads the Group s Secretariat Department. She is the Secretary of various Board Committees of LPI Group. She is also a member of the Investment Committee of the Company. Ms. Kong is a Chartered Secretary (ICSA) and a Fellow of The Malaysian Institute of Chartered Secretaries and Administrators. NONE OF THE DIRECTORS HAS: CONNECTING IDEAS 45

11 Letter to Our Stakeholders LPI Capital Bhd ( LPI ) and its wholly-owned subsidiary, Lonpac Insurance Bhd ( Lonpac ), turned in a commendable result despite challenging conditions that saw a moderation in the growth of general insurance premiums. Volatile operating conditions and weakened commodity prices have played a role in dampening domestic demand, as has continuing uncertainty in the global environment. On the domestic front, demand has been pegged back by the introduction of the Government s Goods and Services Tax ( GST ), which came into force on 1 April The tax has in effect weakened spending power, which was dampened Factors contributing to the weakened currency include depressed commodity prices as well as foreign investor uncertainty in the country and region. Farther afield, slowdowns in key emerging markets including Brazil, Russia and China have also affected business sentiments, as has continued shakiness in the Eurozone. While the US recovery has continued uninterrupted, positive sentiment from this development has been dampened by the US Federal Reserve s decision to raise its interest rates by a quarter of a percent in December While the impact of the rate hike has yet to be felt, there is general acknowledgement that the impact, if any, will likely be negative for the rest of the global economy. Moreover, the International Monetary Fund recently indicated that the global economy will grow at a slower pace, from 3.6% to 3.4%, while world trade is expected to moderate to 3.4% from 4.1%. Meanwhile, the Malaysian Government revised its forecast for economic growth after revising its Budget 2016 measures on 28 January The country s economy is now expected to expand between 4.0% and 4.5% in 2016 from an earlier forecast of between 4.0% and 5.0%. Domestic economic activity is expected to be the main driver of growth. The downward revision of economic expansion is a worrying signal that operating conditions will continue to deteriorate in While the Group remains confident that the strategies we have in place and our sound financial footing will see us through for the foreseeable future, negative developments within our borders continue to represent a risk for us. As a significant portion of our business relies on insuring assets such as property and automobiles, lower consumer demand for these assets may impact total premiums collected. Moreover, we believe that we have yet to see the full effect of the GST on the domestic economy or of the weaker ringgit, spending power, and may affect our sales of elective policies as well as gross premiums. On the property front, we see little indication that the Government will reverse its policies to curb speculation in the property sector. While loan conversion rates for higherend property have been affected, properties priced at the lower end of the spectrum continue to see reasonable sales. As a result, we expect that premium contributions from our property line of insurance will not be significantly affected. Other challenges on the horizon include the liberalisation and removal of tariffs in the insurance sector. While the Government has yet to provide the specifics as to what this may entail, the Group believes that this may affect the contributions of some existing classes of insurance. Liberalisation and the removal of tariffs will also increase the level of competition, which has increased in recent years due to the entry of new foreign players. The Group has been aware of these challenges for the past several years, and is taking appropriate measures to prepare itself for the new regime. Key to our preparations has been realigning our business strategies to meet market conditions and reviewing our processes to optimise efficiency throughout our entire value chain. The automation of processes through the use of information and communications technology ( ICT ) has been a primary facilitator of this optimisation process, and we have plans to continue our investment into ICT over the next few years. Lonpac launched the first phase of its Business Process Management ( BPM ) software in January 2016 for our underwriting processes. The BPM platform will ensure the seamless integration of the various processes involved - from marketing new products to the issuance of policies. The upgrade is a significant and major enhancement of our IT infrastructure, which will significantly boost our capacities. Phase One is expected to be completed by the end of 2016 and Phase Two, which will cover the claims processes, by end In realigning our businesses to market conditions, Lonpac has created a Portfolio Management Division, which will take over the management of the Health and Accident files from the Underwriting Department. The new division is part of our strategy of placing greater emphasis on our personal line of insurance products to further diversify our business in anticipation of the liberalised market. The strategies we have put in place are shown to have worked as our net profit rose to RM321.0 million, representing an increase of 13.4%. We are confident that the strategies and enhancements we have put in place will ensure the continued delivery of shareholder value in the coming years despite the presence of a more adverse operating environment. 46 ANNUAL REPORT 2015

12 Letter to Our Stakeholders Moving forward, the Group believes that there is still opportunity for growth. Key catalysts include the Government s continued investment in infrastructure development, such as the new line for the Klang Valley Mass Rapid Transit system. At the same time, we will be exploring the possibility of launching new products in all our categories of business. We will work together with partners such as Public Bank Berhad ( PBB ) and our global partners to identify avenues for collaboration. In the meantime, the Group would like to reaffirm its commitment to good business ethics and prioritising customer care while enhancing shareholder value. The Board would also like to take this opportunity to reiterate its full support for the Company s Vision: VISION To be the preferred premier insurance solutions provider. Our CORE VALUES represent the way we conduct ourselves and details our responsibilities to our insured, our stakeholders, our people and our community. CORPORATE MISSION Our primary focus is to provide innovative insurance products supported by customer-centric service excellence. We aim to provide our insured an easy channel for all their insurance needs. Our brand is representative of the way we conduct ourselves and the way we approach organisational development. We aim to create an environment that is fair, caring and accountable for our people. Our drive is to create value for our stakeholders, anchored to our Vision and Corporate Mission. We strive for sustainability through financial and technical strength based on recognised and proven standards. L: Aspire to be the LEADER in the insurance industry in Malaysia and in the region. O: Commitment to OPERATIONAL EXCELLENCE guided by integrity and professionalism. N: Creating NEW AND INNOVATIVE market-relevant insurance products. P: PROVIDING a fair, caring and merit based working environment. A: ADOPTING a proactive and accountable approach to stakeholders. C: CRAFTING a premier insurance brand identified for good corporate governance and corporate responsibility. The Board is pleased to present the Annual Report and the Audited Financial Statements of LPI Group for the financial year ended 31 December TO OUR SHAREHOLDERS LPI Group turned in a commendable financial performance despite challenges in the marketplace due to ongoing consolidation in the Malaysian insurance sector. The better results were driven by increased premium production during the year under review. Lonpac s gross premium income for 2015 totalled RM1.25 billion, higher than its record breaking RM1.15 billion posted in 2014 and growing by 8.8% as compared to the industry ratio of 2.6% (Source: ISM Statistical Bulletin for the Period January September 2015). The Board remains confident that the strategies put in place by Management are still the right ones in the face of a more challenging and competitive environment. to a stringent risk selection policy as well as operational efficiencies introduced into Lonpac s business processes. Net profits attributable to shareholders for the financial year under consideration grew 13.4% year-on-year, translating to an earnings per share of sen and a net return on equity of 18.5%. Meanwhile, underwriting results improved 15.9% to RM236.3 million from RM203.9 million in The Board is pleased to report that Lonpac has continued to improve its risk selection and achieved greater operational efficiency and excellence in the areas of underwriting, claims management and business development. This will continue into 2016 with the continued upgrade of Lonpac s ICT infrastructure through the introduction of BPM. Pre-tax profit rose to RM393.1 million, which is 15% higher than the record RM342 million reported in Lonpac s lower combined ratio of 66.6% for the year is attributable CONNECTING IDEAS 47

13 Letter to Our Stakeholders Superior Medium-Term Performance Under Challenging Conditions Lonpac s latest set of results continues an impressive record of superior performance over the last six years. While operating conditions have become more challenging over the last two years, the fact that the Group has managed to maintain its performance is a testament to the effectiveness of its strategies and its prudent business philosophy. RM Total Assets 2,246,462 2,405,215 2,749,262 3,202,331 3,377,206 3,625,348 Profit Before Tax 181, , , , , ,066 Net Profit 137, , , , , ,989 Strategic Direction Going Forward LPI Group has always considered prudence as its guiding business principle, and will continue to do so in the foreseeable future, particularly in this time of uncertainty. We recognise that liberalisation and the removal of tariffs will place us in new territory but we are confident that our optimised business efficiencies and our customer-centric approach will still remain the best guarantees of our future success. In terms of growth, we are still looking at building sustainable long-term growth through a policy of organic expansion coupled with strategic collaborations with key partners. While there is increasing pressure on Lonpac to scale up with the entry of new foreign players, we remain steadfast in our commitments to our shareholders, customers and staff. To this end, our emphasis will continue to be focused on our competitive advantages, which include our strong network of agents and our ability to efficiently price and select risk. As in previous years, we have continued to develop these assets at our disposal and expect to continue doing so moving forward. Some of our key accomplishments this past financial year included: serve our Health and Accident clients throughout the entire value chain introducing new personal and specialised liability products to ensure better client coverage, and These initiatives will take us through 2016, and will help us improve our customer acquisition and agent-retention rate. The contributions from our network of agents remain the largest contributor to gross premiums and we are committed to ensuring that this remains the case in this era of consolidation. Emphasising Sustainable Growth LPI Group remains committed to sustainable growth, which means growing our presence without sacrificing our margins. We are therefore highly selective when it comes to choosing partners and cautious about expanding our reach. Thanks to these prudent policies, Lonpac has managed to protect its bottom line, which is among the strongest in the industry. Key contributing factors include: a portfolio comprising selective risk items efficient business processes and costing a well-developed network of talented agents with comprehensive product knowledge, and a loyal customer pool. 48 ANNUAL REPORT 2015

14 Letter to Our Stakeholders Medium-Term Scenario Planning We believe that Malaysian insurance players will be busy adjusting to the newly liberalised market in the medium term. As there is still no clear visibility on how liberalisation will affect our business, we are preparing ourselves for all possible outcomes. As part of our benchmarking process, LPI Group has put in place a 5-year plan which is evaluated regularly. Performances are compared against the 5-year plan, and against Board and shareholders expectations. Strategies are then adjusted when required. We are pleased to report that Lonpac s key performance indicators continued to outperform the Malaysian industry benchmarks in The following table provides an overview of our performance. Key performance indicators Actual in 2015 Latest available industry benchmark Operating Ratio 57.3% 82.8% Net Claims Incurred Ratio 39.6% 57.3% Management Expenses Ratio 18.7% 21.6% (Source: ISM Statistical Bulletin for the Period January September 2015) Prospects LPI Group s prospects are dependent on Lonpac s performance in the insurance market. We are aware that we are heading into challenging times with new obstacles approaching us. We are also aware that competition is continuing to build and that we cannot assume that our leading market share in some classes of business will remain intact. As for the commercial landscape, we believe that business sentiments will remain dampened by weak commodity prices and by the poor outlook of the business environment. However, this may be offset by continued development spending on infrastructure projects such as the start of the Klang Valley Mass Rapid Transit s second phase via the Economic Transformation Programme ( ETP ). With the ETP expected to continue till at least 2020, Lonpac will work to gain market share in the infrastructure projects market. As for liberalisation, we are confident that we have taken the appropriate measures to prepare for the new regime. However, as regulators have yet to provide full disclosure on the plan to liberalise the market, it is difficult to foresee if and how the market will be affected. State of the Global Economy: The global economy remains volatile with key markets expected to continue to slow down in the coming year. Observers expect this to worsen further should the US Federal Reserve decide to raise interest rates, which will see investors move their funds back onto American shores. With the Organisation of Economic Cooperation and Development reporting that global trade has stagnated and declined since 2014, it is more likely than not that there will be little improvement in external conditions. While Lonpac s business may not be directly impacted by external developments, there may be some indirect impact from issues such as the continued weakness of the ringgit, the consolidation of overseas companies that may involve our partners and the slowing of cross-border trade transactions. While we have been prudent in our selection of risk, we cannot rule out entirely the possibility of another crisis or its impact upon our business. Some key determinants of our future prospects include: State of the Domestic Economy: Although the Malaysian economy is expected to continue to grow, the pace of growth will likely slow in the coming year. Domestic demand, thought to be the main driver, is expected to Based on the latest data from the Government, gross domestic product ( GDP ) is expected to grow between 4.0% and 4.5% in CONNECTING IDEAS 49

15 Letter to Our Stakeholders Consolidation in the Insurance Industry: The Malaysian insurance industry has been consolidating over the last few years in anticipation of the eventual lifting of tariffs in the new liberalised insurance sector. This has created a more competitive environment as foreign players have been consolidating with local players to seek out opportunities within a market-driven state. We are responding to this challenge by diversifying our portfolio and improving our level of customer care to ensure that we become the insurer of choice for all Malaysians. While we expect 2016 to be a challenging year, the Board is confident that Lonpac s healthy financial position, commendable capital adequacy ratio and business strategies are sufficient to ensure that it can compete effectively in its core business. Lonpac is committed to maintaining its position as one of the most established and well-managed insurance companies in the domestic market and strives to continuously improve. The Board is pleased to announce that A.M. Best, a worldwide insurance rating and information agency, has reaffirmed Lonpac s A- (Excellent) financial strength rating and its a- issuer credit rating on 8 October A.M. Best noted that Lonpac s capital adequacy ratio has improved while its strategies and affiliations have enabled it to tap into profitable insurance segments. Review Of Foreign Operations LPI Group s foreign operations in Cambodia and Singapore continue to develop a stronger foothold in their respective countries, and remain key potential markets for our business in the future. The Board is particularly heartened by our operations in Cambodia, which is demonstrating positive signs of development. Our operation in Cambodia is represented by our 45% stake in Campu Lonpac Insurance Plc ( Campu Lonpac ), which continued to expand its market share in the Cambodian insurance industry in Key drivers are strong domestic growth and increasing foreign investor interests from countries including China, Japan and Korea. Further supporting our operations in Cambodia is the extensive banking operations conducted by our affiliate PBB. Lonpac will be further exploring possible opportunities in Cambodia together with PBB. Meanwhile, our branch in the mature Singaporean market is progressing well following its restructuring exercise conducted several years ago. The Singapore market is vastly different from Cambodia as there is significant competition from large domestic and foreign players. However, the Board is confident that the Singapore branch will continue to contribute positively to the Group s bottom line and remains significant for the future. 50 ANNUAL REPORT 2015

16 Letter to Our Stakeholders Delivering Continuous Value For Our Shareholders We remained profitable in 2015, continuing an unbroken track record of profitability in recent years. LPI Group has similarly continued its trend of paying out high dividends to our shareholders, which is a key indicator of the delivery of our commitment towards creating shareholder value. LPI will pay a second interim single tier dividend of 50 sen per share on 24 February The Board is not proposing a final dividend for the year ended 31 December The total dividend payout for FY2015, including the first interim dividend of 20 sen per share paid on 3 August 2015, brings the total net dividend paid to shareholders to 70 sen per share. This amounts to RM232.4 million, representing 72.4% of the Group s net profit for 2015, or a net dividend yield of 4.1% based on LPI s average market price last year. The Group is committed to maintaining regular dividend payouts going forward should there be sufficient capital resources after taking into consideration business growth and expansion plans. Enhancing Shareholder Value With Superior Returns LPI Group s shareholders who have been investing since from the very start would have enjoyed significant returns on their investments over the years. As an industry-leading insurance provider, we have taken steps to ensure the continuous returns over the medium and long terms by ensuring continued strong operational performance and robust corporate governance in all our business activities. The following chart provides a yearly comparison of LPI Group s contribution towards shareholder enhancement. Creating Value for Shareholders Total Assets Gross Written Premiums Available-for-Sale Financial Assets and Held-to-Maturity Financial Assets FY FY FY m FY m (RM Million) Dividends Payout CONNECTING IDEAS 51

17 Letter to Our Stakeholders The following case study illustrates our commitment to shareholder value: Shareholder value over the medium term A shareholder of LPI who purchased 1,000 LPI shares at a price of RM13.18 per share at the beginning of 2011 (i.e. an investment of RM13,180) and held them for five years to the end of 2015 would have received gross dividends of RM4,250 and would have held 1,500 LPI shares as at the end of At the price of RM16.08 per ordinary share at the end of 2015, the shareholder would have shares worth RM24,120 which together with the gross dividends of RM4,250 would give the shareholder an annual rate of return on investment of 18.3% or a total return of 115.3% for the five-year period. Shareholder value over the long term If a shareholder of LPI had bought 1,000 shares in LPI when it was listed in 1993, and assuming the shareholder had subscribed to every rights issue to date and had not sold any of the shares, she/he would have, at the end of 2015, 12,960 LPI shares worth RM208,397, based on the share price of LPI shares of RM16.08 as at the end of In addition, she/he would have also received a total gross dividend of RM72,582 over the years, which LPI has unfailingly paid every year since its listing in With a capital outlay of RM10,730, including subscription for all rights issues, the total return to this shareholder would be RM270,249 or an average rate of return of 26.0% annually for each of the 22 years that this shareholder has held the shares in LPI since it was listed in 1993 (i.e. a total return of 2,518.6% for the period). TO OUR CUSTOMERS Our customers are at the centre of everything we do and we would like to take this opportunity to thank them for their loyal support this past 53 years. A lot has changed in that time, but our commitment towards delivering the best customer care whenever we are needed has remained the same. Over the years, we have introduced new products and changed the way we engage with our clients to take into consideration the new digital world in which we live. From providing more specialised risk protection to making insurance information available at our customers fingertips, LPI Group and Lonpac are evolving to better serve our customers. We build customer relationships that last a lifetime and we are committed to working hard to fulfil that role in the future. Adding Value For Our Customers We are aware of our responsibility to create value for our customers beyond the sale of the insurance policy, and we are constantly working together to educate and advise the general public about the importance of our products. We conduct regular awareness campaigns designed to raise the standard of financial understanding, and the importance of insurance in financial planning. Our agents and staff have been fully trained to deliver effective and complete postsales service that extends to regular engagement with our clients to ensure that all their insurance needs are met. In addition, we have in place various value-added programmes such as the E-Assist, Home-Assist and Travel Assist programmes, which are complimentary for our customers. The aim of these programmes is to provide our clients with additional assistance in their time of need. We have also continued to upgrade our ICT infrastructure and have increased communication and transaction channels for our customers. Our enhanced e-portal gives plans with us, and also allows us to communicate with them when necessary. The e-portal is a key part of our Customer Relationship Management System, which works together with our various departments to ensure that our customers receive the best assistance that Lonpac as a whole can offer. Despite these technological innovations, we believe that faceto-face interactions are still a necessary part of client servicing and hence we have continued to invest in our agents as a main distribution channel. We are committed to providing the best customer care to our clients and welcome any suggestions as to how we can further improve in this area. TO OUR STAFF Our staff are our most valuable asset and we are committed to doing everything we can to help them achieve their ambitions during their time with us. We are grateful for their dedication, loyalty and competency, which have taken Lonpac to where it is today. In return, we are committed to ensuring that they have all the tools they need to reach their potential and to meet the goals they have set for themselves. 52 ANNUAL REPORT 2015

18 Letter to Our Stakeholders Building Our Workforce LPI Group and Lonpac believe that exceptional staff equals exceptional performance, for both our shareholders and our clients. Hence, we are constantly looking to identify talent from both inside and outside our organisation to fill our talent needs. We practise a strict policy of non-discrimination, and assess all candidates based solely on their ability and their track record. Management also identifies talent that will benefit from grooming, and selects these candidates for specific roles. We believe that our relationships with our staff are best developed over the long term, and hence we strive to build secure and mutually beneficial relationships with all of them. Our aim is to create a team that works together as a unit and one where all our staff feel valued as individuals and as team players. In 2015, LPI Group saw an overall staff turnover rate of 6.91%, which is considered low and stable within the insurance industry. Skills And Knowledge Development The Group believes that our staff should always be looking to improve their capabilities and increase their value to the Group. We believe in a philosophy of lifelong learning, and regularly hold seminars, conferences and workshops for our staff at all levels. We recognise that the insurance industry, as well as both internal and external operating environments, is constantly changing, and we want our staff to be best equipped to adapt to new operating conditions. For example, in preparation for liberalisation, Lonpac has made the decision to make small changes in its business focus areas, and we have started preparing our agents and staff to accommodate those changes. This may mean greater training in some classes of products or training to familiarise them with new systems. Structured Management Succession The structured management succession plan for senior management staff is in place for all business areas. Under this plan, candidates are identified and groomed for top managerial positions by receiving greater exposure and training to meet the demands of management at the seniormost levels. They will also be trained to enhance existing skill sets and to widen their breadth of understanding. The Group also promotes competitive performance benchmarking to identify and encourage emerging talents and build a pool of qualified candidates for succession planning. Rewarding Our People We practise a fair and transparent performance-based remuneration system and a merit-based career progression pathway. Rewards are closely and transparently correlated with staff performance, and objectively quantified in relation to the staff s contribution to core business performance. The Group also takes note of other factors including work ethic, natural talent and the ability to perform in different conditions. The Group s reward system is closely aligned with its overall emphasis on prudence, which places high expectations on our staff. In turn, the Group has consistently recognised and fairly remunerated the top performers in all its business areas. Increasing Productivity A key measure of staff productivity is the average value of gross premiums per employee, which was RM1,695,000 per person in This is compared against our benchmark year of 2006 where our employees averaged gross premiums of RM996,000 per person. This improvement is a testament to the efficacy of our training and development programmes, and that the strategies we have in place are working. As per our Group s staffing policy, we have in place a robust succession-planning strategy, which will ensure that we have a competent team of managers that will ensure our long-term sustainability. Staffing needs under this strategy are constantly reviewed, and candidates assessed for their suitability in terms of their development. As all staff are eligible for senior management positions given our policy of non-discrimination, we urge all employees to continue working on developing their level of capability. CONNECTING IDEAS 53

19 Letter to Our Stakeholders Staff Values We expect our staff to adhere to a strict code of conduct and corporate values governed by our Code of Ethics. These are codified in the Code of Conduct of LPI Group, which espouses a zero-tolerance policy against violations. The insurance business depends on a foundation of trust, and we believe that we can only preserve this foundation if our staff conduct themselves with the greatest decorum. Our senior staff are also expected to maintain exemplary corporate conduct at all times so as to lead by example. They are expected to function as role models to others within the organisation, and are expected to play a part in ensuring that the operating environment is in compliance with both regulatory and internal requirements. The conduct of our staff also plays an important role in helping us maintain our reputation as a model corporate citizen and as a leading financial institution in both Malaysia and the ASEAN region. We therefore require our staff to be aware that they are representatives of the Company in both their personal and professional lives, and that they must live up to this responsibility at all times. Caring For Our Staff We recognise that we have high expectations of our staff and we are aware that they similarly have high expectations of us. In dispensing this responsibility to our staff, we have put in place programmes that ensure their well-being as well as the well-being of their families. Aside from a fair and competitive salary structure and benefits, the Group has a number of other measures to provide financial relief to staff when necessary. TO OUR COMMUNITY Contributing To The Economy As a leading insurance group and financial institution in the country, the Group has a responsibility to ensure we behave as model corporate citizens. We are committed to completely meeting our tax obligations at all times, and have remitted RM65.1 million in taxes in In terms of our operations, we are well aware of our obligation to mitigate risk and stimulate economic activity, and hence take our role as an insurance company with the utmost seriousness. We also regional and global partners, and hence commit ourselves to maintaining a strict code of conduct and appropriate decorum in all our dealings. CR Activities Our contributions to the community have become a mainstay of our annual activities. Our focus has always been concentrated on the segment of Malaysians who need help the most, which in our case has translated into children s homes and charities for underprivileged Malaysians. These activities have become staples that see regular and consistent participation from our staff. Our CR activities also extend to our staff, who are encouraged to participate in the numerous activities planned regularly throughout the year that range from environmental-focused events to talks involving general health and safety. We invite you to turn to the CR section of this Annual Report for an exhaustive list of all our activities. LPI Group would like to thank our staff, agents, customers and partners for helping make these community activities a success. We are firm believers that we all have our part to play in making our country a better place, and that we can make a big difference if we work together. The insurance business is one that has a direct relationship with the community. We are aware that we have a duty to give back to our communities, not only in terms of ensuring our business activities are conducted ethically and responsibly, but also in terms of empowering and capacitating our communities. Our Corporate Responsibility ( CR ) Programme serves as the blueprint and foundation for our initiatives designed to make communities better places. 54 ANNUAL REPORT 2015

20 Letter to Our Stakeholders OUR APPRECIATION The Board wishes to express its appreciation to all the Group s stakeholders, who have continued to support LPI Group for all these years. We hope that our relationship will continue into the future as we grow, sustainably, together. A special thanks goes to our customers for making Lonpac their insurer of choice. Our goal is to build lifelong relationships with each and every one of you, and we hope that we will continue to meet all your expectations. The Group would also like to thank our network of agents, brokers, reinsurers, policyholders and other business associates who have been invaluable partners in our mission to become the leading insurer in the country. We are committed to stand by you even as the insurance industry enters a new era in Malaysia, and we hope that you will continue to support us as we embark on this journey. The Board would like to take this opportunity to recognise and thank the Management and staff of LPI Group, who are responsible for key day-to-day operations. The Board is grateful for their continued loyalty, diligence and whole-hearted commitment to the Group, which have been key reasons for the Group s continued success. Finally, the Board and Management would like to thank the regulators, Bank Negara Malaysia and other relevant regulatory authorities for the support and advice received throughout the year. Tan Sri Dato Sri Dr. Teh Hong Piow Chairman Mr. Tee Choon Yeow Co-Chairman Mr. Tan Kok Guan Executive Director Dato Haji Abdul Aziz bin Dato Dr. Omar Director Mr. Quah Poh Keat Director Ms. Chan Kwai Hoe Director Mr. Lee Chin Guan Director 28 January 2016 CONNECTING IDEAS 55